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Saturday, March 21, 2009

Brief Discription of Accounting Cycle:

1. Identification of Financial Transactions:Accounting is concerned with only monetary transactions. Therefore, accountants need to identify and assemble financial transactions at first. There should be some evidence like invoice, vouchers, bills etc. associated with each transaction for its validity.2. Journalizing and Recording in Subsidiary Books:This is the second step of accounting process. After identifying financial transactions, they are recorded in journal vouchers. Some special and repetitive transactions are sub-divided into subsidiary books as like sales books, purchase books, sales return books, cash books etc. It is performed on the basis of various bills, vouchers, invoices etc.3. Posting into Ledger Accounts:Under this step, transactions relating to a particular account are gathered at one place. It is the process of posting into the various ledger accounts like debtor account, creditor account, income account, expenditure account etc. from the subsidiary books.4. Preparation of Trial Balance:This is the fourth step of accounting process. After preparing ledger accounts, all the balances of ledger accounts are transferred to trial balance. It is prepared to test the arithmetical accuracy of financial records. It is a basis for the preparations of final accounts.5. Preparation of Final Accounts:After preparing trial balance, the final accounts are prepared. It consist Trading, Profit and Loss Accounts and Balance Sheet. Trading and Profit and Loss Accounts are prepared to determine the profit or loss occurred during the year whereas Balance Sheet is prepared to know financial position of the business.6. Interpretation and Evaluation of Financial Statement:This is the last step of accounting cycle. Books of accounts prepared earlier are analyzed and interpreted by using various formula and tools. It helps to know about the profitability, liquidity, the reasons of profit or loss, strength and weakness of business operation. Interpretation and evaluation of final accounts and other books of account provide the information to managers, owners, and shareholders to forecast future prospective.

Concept of Government Accounting:Government accounting is that branch of accounting, which is kept by the government offices. It is basically related to record the revenues (incomes) and expenditures of ministries, departments, operating level offices and other legal bodies of the government. In simple language, it is concerned with keeping records of government revenues generated from taxes, duties, penalties, subsidies, grants, loan etc. and the budget expenditure like salary, rent, office stationery, fuel, public construction, vehicles and furniture etc. Besides recording, it also involves in classifying, summarizing, interpreting and communicating financial information about government.

According to Oshisami and Dean, "Government accounting is the process of recording, analyzing, classifying, summarizing, communicating and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipt, transfer and disposition of government funds and property."

From above definition, it is clear that government accounting is the process of recording, analyzing, classifying, summarizing, communicating and interpreting, monetary transactions of government. It discloses all the transactions relating to receipt, transfer and disposition of government funds or property. It facilitates to estimate the future budget.

Features of Government Accounting:The main features of government accounting are as follows:

It is maintained as per the government act, rules and regulations.

It is based on double entry system of book-keeping.

It does not have profit motive except in case of some commercial enterprises run by the government.

It is guided and controlled by the budget. All records of government expenses and revenues are made as per the principles and policies guided by the budget.

Under this accounting system, all the expenditures and revenues of government are recorded according to the budget heads.

It gives more emphasis on banking transactions. There is provision of separate bank accounts to operate different funds of government.

Books of accounts kept under it, must be audited by the auditor to avoid misuse and misappropriation of government revenues.

Objectives of Government Accounting:

To record financial transactions of government.

To avoid the excess expenditures beyond the limit of budget.

To provide financial data and information.

To safeguard the government properties.

To facilitate auditing.

To prepare annual report.

Distinction between Government and Commercial Accounting:The primary objective of government and commercial accounting is to record the financial transaction, however they are different due to the following reasons.